Economics Journal: Are U.S. Fast Food Workers More Productive?

But why do workers at McDonalds restaurants in poor countries, including India, make much less than McDonalds workers in the U.S. and other rich countries?

Flipping a hamburger patty isn’t like performing brain surgery. It requires a minimal level of skill and education. So why do burger flippers in India and other developing countries make so much less than their counterparts in the U.S. and other rich countries?

Economists usually reason that wage differences capture differences in worker productivity. Roughly speaking, productivity measures the amount of goods or services that one hour of work can produce. On average, labor productivity is four to five times higher in rich countries than it is in poor countries.

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One natural interpretation of this difference is that rich country workers benefit from the technology and managerial know-how of advanced Western firms. They also typically have a higher level or quality of education than workers in poor countries. It’s no surprise that a Harvard trained surgeon working with the latest medical equipment at a top private hospital in Cambridge, Massachusetts, will earn way more than a surgeon trained at the All India Institute of Medical Sciences working with basic equipment in a government hospital.

But why do workers at McDonalds restaurants in poor countries, including India, make much less than McDonalds workers in the U.S. and other rich countries? They have the same equipment and technology after all, and identical burger flipping skills.

New research by Orley Ashenfelter, a labor economist and professor at Princeton, painstakingly documents the wages of workers at McDonalds outlets around the world and the price of a Big Mac or equivalent in each of those outlets. Mr. Ashenfelter drew inspiration from the famous Big Mac price index of the Economist magazine, which uses the price of Big Macs around the world to compute the purchasing power of different currencies.

This new research reveals that a McDonalds worker in the U.S. earns $7.22 per hour and a Big Mac costs on average a little more than $3.00. So an hour of work can buy almost two-and-a-half Big Macs.

Now take India. A worker earns the equivalent of less than $0.50 an hour but the Indian version of a Big Mac, the Chicken Maharaja-Mac, costs about $1.30. That means a worker would need to work two to three hours just to buy a single Big Mac. (Of course, that begs the question of why you would work so hard and blow your meager income on a McDonalds burger when there are many cheaper and arguably more wholesome options available, as Mr. Ashenfelter acknowledged in an interview.)

The point of the comparison is that according to these numbers, the McDonalds worker in the U.S. is apparently almost eight times more productive than his Indian counterpart, based on how much an hour of work can buy them in each country. This is strange because they’re doing basically identical work under almost identical working conditions, technology, management and so forth. So what’s the difference in “McWages,” as Mr. Ashenfelter calls them, really telling us? Is it really true that an American fast food worker is eight times more productive than an Indian one?

The answer is almost certainly no. What the big gap is picking up instead is the huge difference in living standards and institutional arrangements in the two countries. As a general rule, there’s a close correlation between the level of economic development as measured by GDP per capita and the wage of an average worker: the gap between the U.S. and India is to a first approximation just picking up the fact that the U.S. is much richer than India.

For one thing, fast food workers around the world are generally paid the minimum wage or close to it. So one simple explanation for the big discrepancy is that the American and Indian McDonalds workers are each making what the government mandates to be the bare minimum. Or to put it in a different way, someone working in my neighborhood McDonalds in Mumbai is not competing with a McDonalds worker in New Jersey and wouldn’t expect to receive an American wage level. Rather, the Indian worker is competing with workers at nearby restaurants and is doing pretty well by local standards. In fact, at the going wage, someone flipping burgers at McDonalds is doing about as well in terms of salary as a waiter at a high end restaurant in Mumbai, as a waiter whom I spoke to recently confirmed.

Apart from a general difference in living standards, what else could account for the gap in wages?

Let’s consider the price of Big Macs and their equivalents around the world, as Mr. Ashenfelter’s study does. The difference in prices would reflect differences in market conditions. In other words, McDonalds in the U.S. is competing with other fast food chains and will price burgers to be competitive: the Big Mac is meant to be affordable by anyone, rich or poor, and is priced accordingly.

But McDonalds in India represents “aspirational” consumption for the new urban middle class and therefore can be priced considerably higher than the food offered by a street side food vendor. For example, the famous Mumbai street food called “vada pav” — a spiced vegetarian patty inside a bun — can be bought from a local vendor for about $0.50, or about a third of the price of a Chicken Maharaja-Mac. From this perspective, it’s no surprise that an hour of work at McDonald’s in India only buys a third of a McDonald’s burger.

The bottom line is that where you live is still hugely important for how much you make, despite all of the advances caused by globalization. It’s not that workers in India are necessarily less productive than workers in rich countries. It’s the overall economy around them that’s dragging them down relative to their rich country peers. The humble Big Mac is a potent metaphor for the challenges of economic development and helps us understand why workers in poor countries still lag so far behind.

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